Some Implications of the New Predatory Lending Law
By James Bruce Davis1
Having survived the Congressional review period, the District of Columbia Protections
from Predatory Lending and Mortgage Foreclosure Improvements Act of 2000 has become the
law of the District of Columbia. Beyond prohibiting predatory lending practices and establishing
new foreclosure procedures, the Act makes far-reaching changes in mortgage law. This article
summarizes some of the mortgage law changes that will affect the title insurance industry.
Requirements for Recordation
Names and addresses of the parties (Section 204). Every lien instrument (the Act’s name
for mortgages and deeds of trust), certificate of transfer, amendment or deed of appointment must
state the name and address of each party. Instruments that fail to meet this requirement are not to
be recorded; however, a recorded lien instrument’s failure to satisfy this requirement does not
affect the validity the instrument.
Information statements for residential lien instruments (Section 205). Every lien
instrument affecting “residential real property” must have attached to it an information statement
or else a certification that the lender will enforce the lien instrument only by judicial foreclosure.
“Residential real property” means: (A) a one to four family dwelling, including a condominium
or cooperative unit; (B) an owner-occupied residential building of up to 10 dwelling units; (C) an
owner-occupied mixed use building with an assessed value of $1,000,000 or less containing one
to four dwelling units. The information statement must be prepared by the originating noteholder
or its agent and must be executed and acknowledged by: (1) all borrowers and owners under the
deed of trust; and (2) the mortgage broker or other person who originated or placed the loan or
vendor who is a noteholder in a purchase money lien instrument. Each information statement
must indicate whether the lien instrument secures a “home loan” (a term with a five-page
definition). Any home loan will come within the Act’s prohibition of predatory lending
The requirement for information statements has a deferred effective date: the later of 60
days after the effective date of regulations under the Act or 150 days after the effective date of
A separate provision of the Act (Section 1410) prohibits the Recorder of Deeds from
recording any lien instrument on residential real property without an information form, unless the
person submitting the lien instrument for recordation provides a written certification that an
information form is not attached. A recorded lien instrument’s failure to satisfy this requirement
does not affect the validity of the instrument. However, failure to file a correct and complete
information statement within six months after the recordation of a lien instrument on residential
real property nullifies any provision in the lien instrument providing for non-judicial foreclosure.
James Bruce Davis is a shareholder in Bean, Kinney & Korman, P.C., Arlington, VA, and a past President of the
District of Columbia Land Title Association.
Requirements for a Valid Lien Instrument
Identification of obligation and amount secured (Section 202). A lien instrument must
identify the instrument whose performance it secures and state a monetary value in United States
currency of the principal amount of the obligation secured.
Formal requirements (Section 206). Lien instruments must be executed, acknowledged
and recorded in the same manner as deeds.
Payoffs and Releases
Payoff information (Section 210). Upon request, for good cause, the noteholder or
secured party must provide a payoff statement, escrow balance and certain other information
regarding the loan to anyone liable on the note, a subordinate lienholder (not more frequently
than once every 12 months), or a prospective purchaser at a foreclosure sale of a subordinate lien
instrument or at a judicial sale to enforce a subordinate judgment lien. The noteholder is not
required to provide payoff or reinstatement figures to a prospective purchaser at a foreclosure
sale under the lender=s own lien instrument.
Presumption of payment (Section 217). A lien instrument is conclusively presumed to
have been paid if not released within 12 years after the maturity date stated in the instrument or,
if the lien instrument does not state a maturity date, within 35 years after recordation of the lien
instrument or the last amendment to the lien instrument. The presumption is inapplicable to a
foreclosure proceeding commenced prior to the expiration of the applicable 12 or 35 year period.
Releases (Section 218). A lien instrument may be released by recording the original note,
marked “paid,” “satisfied,” or “canceled,” together with a note affidavit executed by an attorney
or title company who advanced funds to pay off the note. A lien instrument may also be released
by certificate of satisfaction signed by the noteholder, beneficiary or trustee under a lien
instrument. If the note secured by a lien instrument has been lost or destroyed, the noteholder,
beneficiary or trustee may release the lien instrument by recording a release affidavit. The Act
provides forms for certificates of satisfaction and release affidavits.
Duty to release (Section 219). A noteholder who receives payment in full or a partial
prepayment of a note is required promptly to provide a release or partial release of the lien
instrument. If the lien instrument is a residential lien instrument, the noteholder must deliver the
release to the Recorder of Deeds, together with the required recordation fee. If the noteholder
fails to deliver the release, a party in interest may send the noteholder a notice requesting the
release. If the noteholder fails to give the release within 30 days after the notice, the noteholder
will be liable for statutory delay damages of $50 per day, not to exceed $10,000.00, actual, direct
and consequential damages, and the costs and legal fees incurred by anyone enforcing his right to
Effect of Foreclosure or Deed In Lieu of Foreclosure
Effect of foreclosure (Section 222). A valid foreclosure of a lien instrument terminates a
subordinate interest in the real estate, but only if the owner of the subordinate interest is given
notice of a nonjudicial foreclosure or is joined as a defendant in a judicial foreclosure.
Foreclosure does not affect any interest senior to the lien instrument being foreclosed. Generally,
a foreclosure sale will terminate a subordinate non-residential lease; however, if the lease was
recorded at least 60 days prior to the commencement of a foreclosure, the lease will be unaffected
if the tenant is not given notice of a nonjudicial foreclosure or named as a defendant in a judicial
foreclosure. This provision has a deferred effective date: the later of 60 days after the effective
date of regulations under the Act or 150 days after the effective date of the Act.
Deeds in lieu of foreclosure (Section 214). Deeds in lieu of foreclosure do not affect
senior or subordinate liens. If the noteholder takes the deed in lieu of foreclosure, the lien
instrument is canceled. Therefore, a lender should never accept a deed in lieu of foreclosure if
there are subordinate liens on the property. However, a deed in lieu may be made to the
noteholder=s designee without canceling the lien instrument. A deed in lieu of foreclosure to the
lender=s designee will preserve the lender=s right to foreclose, which would be necessary to
extinguish junior liens on the property.
Priority of Lien Instruments
Several Sections of the Act affect the priority of lien instruments. All have a deferred
effective date: the later of 60 days after the effective date of regulations under the Act or 150
days after the effective date of the Act.
Priority of purchase money lien instruments (Section 223). A purchase money lien
instrument, if recorded within 30 days of delivery, takes priority over a pre-closing judgment
against the purchaser or other lien created by the purchaser prior to his acquisition of the
property. Unless otherwise agreed by the parties, a seller take-back lien instrument recorded
within 30 days of delivery takes priority over any other purchase money lien on the same
property. Under this rule, a seller=s purchase money lien instrument, even if unrecorded until 30
days after a closing, could take priority over a lender=s purchase money lien instrument recorded
at the time of closing. Therefore, settlement agents may wish to require the buyer and seller to
provide an affidavit stating that there is no undisclosed seller financing.
Replacement or modification of lien instrument (Section 224). Subject to various
requirements and limitations, the Act provides that a senior lien instrument may be modified or
refinanced without the consent of a junior lienholder. If a senior lien instrument reserves to the
owner and lender the right to modify or replace the senior lien instrument, then the senior lien
instrument may be modified or replaced without a junior lienholder=s consent, even if the new or
modified lien instrument is materially prejudicial to the junior lienholder, except to the extent
that the new or modified senior lien instrument increases the maximum principal amount of the
senior debt, readvances principal under the senior debt or grants the senior lender a share of the
revenues, income or appreciation of the security property. To be effective, the reservation must
be stated conspicuously and in all capital letters. If the senior lien instrument does not reserve
the right of replacement or modification, the senior instrument may still be released and replaced
in a single transaction, without losing priority to a junior lien instrument, except to the extent that
the replacement senior lien instrument is materially prejudicial to the junior lienholder, increases
the principal indebtedness above the amount stated in the old senior lien instrument, readvances
principal under the senior lien instrument or adds a provision for revenue, income or appreciation
Lien instrument may encumber after acquired property (Section 226). A lien instrument
may encumber specifically identified property that the borrower does not own but acquires within
one year after recordation of the lien instrument. The wording of this provision is confusing.
The lien seems to be good between the parties upon the borrower=s acquisition of the after
acquired property. However, the lien instrument is treated as unrecorded as to third parties until
a modification of the lien instrument is recorded describing the after acquired property. The Act
does not state when the modification must be recorded. Presumably, the modification should be
recorded after the borrower actually acquires the property, but the Act does not say this explicitly.
The lien on after acquired property is automatically subordinate to any purchase money
lien instrument on the property. However, because of the lack of clarity concerning when the
lien on after acquired property will be treated as unrecorded, other kinds of lien instruments may
not have priority over a lien on after acquired property. Because a lot and square search should
disclose a lien on after acquired property, the lien will appear to be recorded even if the Act
requires it to be treated as unrecorded. Title insurers undoubtedly will wish to take exception for
an after acquired property lien in any owner=s policy and in any loan policy that does not secure
a purchase money loan. Further reflection may show that liens on after acquired property have
additional implications for examination and underwriting practices.
Future advances (Section 230). A lien instrument may secure future advances of
principal if the parties so agree in writing. For the future advances to have priority over
subsequent owners and encumbrancers, the lien instrument must state that it secures future
advances, identify the document that so provides, and state the monetary amount that may be
secured by the lien instrument. If the lien instrument secures a loan to improve residential real
property owned by the borrower, the lien instrument may not secure future advances except those
requested by the borrower in writing at the time of each advance.
This article has summarized some of the Act’s most significant changes in District of
Columbia mortgage law. The Act contains other provisions affecting mortgages that could not
be covered in an article of this length. Many of the Act’s provisions may not be fully understood
until interpreted by the courts. Lawyers and title industry professionals probably will find
themselves interpreting the Act for years to come, and the Act will undoubtedly require
significant changes in title insurance practices.